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Topic No. Title Page No.

Chapter 3

3.1.2. Subdivisions 3

Chapter 4

4.1.2. Types of Agency 4

4.2.2. Fiduciary Duties 5

Chapter 9

9.2.2. Types of Contracts 6

9.3.2. Essential Elements of a Valid Contract 7

9.4.2. Discharge of Contracts 8

Chapter 10

10.1.2. PETE 9

10.2.2. Freehold Estates 10

Chapter 12

12.1.3. Types of Listing Contracts 11

TABLE OF CONTENTS

SUBDIVISIONS

SUBDIVISION:The act of dividing land, or a building into individual pieces, which can be sold and owned separately.

Land can be divided into individual plots or parcels.Buildings can be divided into individual apartments or units.

There are 4 primary types of subdivisions:Condominiums

Cooperatives

Time-Shares

Cluster Housing

Since a CONDOMINIUM is considered Real Property, each unit owner receives a DEED at closing.

EACH OWNER OWNS THEIR PARTICULAR UNIT

In addition to owning their particular unit, each owner has a shared interest in the building's COMMON AREAS

COMMON AREAS:Areas in a condominium that are used by all residents.

BUILDING LOBBY

HALLWAYS

STAIRS / ELEVATORS

POOL

LANDSCAPING

ROOF AND EXTERIOR WALLS

EXAMPLES OF COMMON AREAS INCLUDE:

CONDOMINIUMAn estate in real property wherein an owner owns an interest in a single apartment/unit, and a shared interest in the common areas of the building.

OWNER B

OWNER A

OWNER C

OWNER A

OWNER C

OWNER B

CONDOMINIUM BUILDING

COOPERATIVE BUILDING

CORPORATION THAT OWNS COOPERATIVE

BUILDING

Cooperative owners do not own their apartment unit or the cooperative building itself, but instead own SHARES OF STOCK in the corporation that owns the cooperative building.

SHARES OF STOCK

The SHARES OF STOCK are considered PERSONAL PROPERTY NOT REAL PROPERTY

While cooperative owners do not own their apartment unit, they are allowed to occupy the unit through a PROPRIETARY LEASE.

PROPRIETARY LEASE

COMMON CHARGES:A monthly fee associated with living in a condominium.

COMMON CHARGES TYPICALLY INCLUDE:

MANAGEMENT FEES

OPERATING EXPENSES

ADMINISTRATION FEES

TRASH AND SNOW REMOVAL

AMENITIES UPKEEP

CONDOMINIUM OWNERS PAY THE FOLLOWING IN ADDITION TO COMMON CHARGES:

MORTGAGE PAYMENT ON THEIR UNIT

PROPERTY TAXES ON THEIR UNIT

Condominium owners are required to pay COMMON CHARGES, in addition to their mortgage.

Cooperative owners are required to pay a MAINTENANCE FEE, in addition to their mortgage.

MAINTENANCE FEE:A monthly payment by a cooperative shareholder to the cooperative corporation.

COOPERATIVE OWNERS PAY THE FOLLOWING IN ADDITION TO MAINTENANCE FEES:

MORTGAGE PAYMENT ON THEIR UNIT

MAINTENANCE FEES TYPICALLY INCLUDE:

TAXES

INSURANCE

MORTGAGE ON THE BUILDING

MAINTENANCE OF THE PROPERTY

COOPERATIVEA form of ownership in which stockholders in a corporation occupy property owned by the corporation under a lease.

Time-shares are popular in the secondary home and vacation home markets.

2 Weeks Per Year

2 Weeks Per Year

1 Week Per Year

4 Weeks Per Year

3 Weeks Per Year

3 Weeks Per Year

1 Week Per YearTime-shares involve an 'interval ownership' in which each owner has a deed to the property.

An ownership stake in a time-share can be sold to another owner.

TIME-SHAREA right of occupancy in a time-share project (subdivision) which is coupled with an estate in the real property.

CLUSTER HOUSINGA planned subdivision in which a single large tract of land is divided into smaller individual plots, each of which includes a detached house.

Cluster housing is similar to a planned community in which the houses look similar.

The owners in a cluster housing may be bound by CC&Rs.

CC&Rs (Covenants, Conditions, and Restrictions)The basic rules establishing the rights and obligations of owners of real property within a subdivision, in relation to other owners within the same subdivision, for the purpose of operating and maintaining property commonly owned by the individual owners.

TYPES OF AGENCY

A Universal Agent is the broadest form of agency.

An example of a Universal Agent is a Power of Attorney

1 UNIVERSAL AGENTAn agent who is authorized to perform all acts or duties his/her principal is empowered to perform.

POWER OF ATTORNEY:A written instrument whereby a principal gives authority to an agent. The agent acting under such a grant is sometimes called an attorney in fact.

GENERAL AGENT2An agent with full authority over one property of the principal.

3

Unlike a Universal or General Agent, a Special Agent performs limited duties and whose relationship with the principal is not meant to be continuous.

In the case of a real estate broker, Special Agency is created through the signing of the Listing Contract, and ends when the contract is fully performed.

CREATION OF AGENCY

EXAMPLE:A common example of a general agent is a real estate licensee acting as a property manager for a building owner.

A general agent is given the authority to perform several tasks on a continuous, long-term basis.

There Are 3 Types of Agents:(1) Universal Agent

(2) General Agent

(3) Special Agent

Agency Can Be Created In 2 Ways:

(1) Express Agency

(2) Implied Agency

REAL ESTATE BROKERS/SALESPERSONS operate as a Special Agent.

EXAMPLE:

While Express Agency can be created through an oral contract, the Statute of Frauds requires most real estate contracts to be in writing.

In addition, it is often difficult to enforce an oral contract in the court of law.

Whenever possible, agents should use written contracts!

EXPRESS AGENCYAn agency relationship created by an ORAL or WRITTEN agreement between principal and the agent.

1

IMPLIED AGENCYAgency that exists as a result of the ACTIONS of the parties.

2

The most common example of Express Agency is a written Listing Contract between a Broker and Principal.

EXAMPLE:

Mary owns a multi-family building, which has several vacancies.

Mary's friend, Mark, is a licensed real estate salesperson.

Mary asks Mark if he could help her fill the vacancies by advertising her apartments on his broker's website.

Mark agrees, and after advertising the vacancies, Mary eventually secures a tenant.

EXAMPLE:

Unlike Express Agency, there is no formal contract between the parties when Implied Agency is created.Instead, the actions of the parties indicates they have an agreement.

SINGLE VS DUAL AGENT

While Mary didn't have an express agreement with Mark, the fact that she asked Mark to help her by performing a common duty of a real estate agent (marketing an apartment), and Mark agreed to do so, it could be determined that an implied agreement was in place.

SPECIAL AGENTAn agent with limited authority to act on behalf of the principal.

In most transactions, the broker or salesperson is acting as a Single Agent.

They either serves as the Listing Agent (Seller's Agent), or the Buyer's Agent.

AGENT represents either the SELLER or BUYER

SINGLE AGENTAn agent who works only for the buyer or the seller.

DUAL AGENTAn agency relationship in which the agent acts concurrently for BOTH of the principals in a transaction.

SELLER (OR BUYER)AGENT

AGENT

SELLER

AGENT represents BOTH the BUYER and SELLER

BUYER

DUAL AGENCY MUST BE FULLY DISCLOSED TO ALL PARTIES!

FIDUCIARY DUTIES

FIDUCIARYA person in a position of trust and confidence, as between a Principal and an Agent. An Agent as a fiduciary owes a certain loyalty which cannot be breached under the rules of agency.

All agents owe their clients FIDUCIARY DUTIES

FIDUCIARY DUTYThat duty owed by an Agent to act in the highest good faith toward the Principal and not to obtain any advantage over the latter by the slightest misrepresentation, concealment, duress or pressure.

To Remember the FIDUCIARY DUTIES Owed By An Agent, Use the Acronym:

C.O.A.L.D.

Care

Any acts that violate the Fair Housing Laws

Prohibiting the broker to disclose material facts about the property

EXAMPLES OF ILLEGAL INSTRUCTIONS:

EXCEPTION:Agents do not have to obey any illegal instructions!

The property can only be shown during set hours

The seller's identity cannot be revealed to prospective buyers

The broker cannot reduce the asking price

EXAMPLES:

Agents are required to obey instructions given by the Principal.

Obedience

Agents should only offer/perform services for which they have an expertise.

Agents are required to meet the standards of skill, care, and diligence in all of their transactions.

(Also known as Reasonable Care and Skill)

EXAMPLE:A commercial building owner wants to hire an agent to lease all of the vacant office space in the building.

While this may lead to several lucrative commissions, the agent is only experienced in residential leasing.

The agent should decline the offer and instead refer a more experienced agent in commercial leasing.

Agents may be liable for any financial losses incurred by their clients due to the agent's negligence!

oyalty

isclosureD

Present every offer to the Principal

Present all known information about the offer/buyer

The Agent Should:

Agents must disclose all pertinent information to their client.

This includes presenting ALL offers to the client.

Even if the seller gives the broker permission to reveal confidential information, the agent should obtain the permission in writing!

EXAMPLE:

A homeowner recently accepted a new job out-of-state and must sell their existing house as soon as possible.

The seller's agent CANNOT reveal this information to prospective buyers, unless given permission by the seller.

If prospective buyers knew the seller was very motivated to sell, they will most likely make offers below (or even well below) the asking price.

Because of their fiduciary relationship, agents cannot reveal any confidential information they may know about the seller to prospective buyers.

Agents must work in the best interests of their client. This includes putting their client's interests above their own.

Revealing confidential information may give the buyer an unfair advantage in the negotiations.

L

This fiduciary duty refers to financial accounting.

Agents must account for all funds they receive on behalf of their clients.Agents must also keep accurate records of all receipts and expenditures regarding their client's funds.

Accounting

Agents must NEVER commingle funds!

COMMINGLING:To mingle or mix, for example, a client’s funds in the broker’s personal or general account.

TYPES OF CONTRACTS

BILATERAL / UNILATERAL CONTRACTS

BILATERAL CONTRACT:

A contract between two or more parties in which each party promises to do something

UNILATERAL CONTRACT:A contract in which one party promises to do something if the other party performs a certain act, but the other party does not promise to perform it

UNILATERAL CONTRACT IN REAL ESTATE:

EXAMPLE OF UNILATERAL CONTRACT:

An owner puts up flyers to help find their missing dog. The owner is willing to pay a $1,000 reward to whoever finds the dog.

This is a type of unilateral contract since the owner only has to pay the reward if their dog is found.

Open Listing

BILATERAL CONTRACTS IN REAL ESTATE:

Independent Contractor Agreement

Exclusive Agency Contract

Exclusive Right to Sell Contract

Lease

Purchase Sale Contract

EXPRESS / IMPLIED CONTRACTS

EXPRESS CONTRACT:A contract that has been put into words, either spoken or written

An agreement that has not been put into words, but is implied by the actions of the parties

According to the Statute of Frauds, most real estate contracts must be in-writing

REAL ESTATE CONTRACTS THAT MUST BE IN-WRITING:

Exclusive Agency Contract

Exclusive Right to Sell Contract

Purchase Sale Contract

Independent Contractor Agreement

Lease (1 Year Or Longer)

Leases with a term of less than 1 year may be oral

EXAMPLE OF IMPLIED CONTRACT:

When a person sits down and orders food at a restaurant, it is implied the person will pay for the food they ordered

EXECUTORY / EXECUTED CONTRACTS

EXECUTORY CONTRACT

EXECUTORY CONTRACT:A contract in which something remains to be done by one or both of the parties

An agreement that has been fully performed

EXAMPLE:

After the terms of the contract have been agreed upon, the contract is signed by both parties. The contract is considered EXECUTORY.

EXECUTED CONTRACT

After the closing is finalized, and the funds and title are transferred, the contract is considered EXECUTED.

Neogtiating Process Closing Process

VALID / VOID / VOIDABLE / ENFORCEABLE / UNENFORCEABLE

IMPLIED CONTRACT:

Mary is negotiating to purchase David's house

EXECUTED CONTRACT:

A contract that is legally binding and enforceable

VALID CONTRACT:

A contract that has no legal force or effect

VOID CONTRACT:

A contract that may be voided by the parties without legal consequences

VOIDABLE CONTRACT:

Purchase Contract

Listing Contract

Independent Contractor Agreement

EXAMPLE:Any contract that includes ALL of the essential elements of a valid contract.This includes:

Lawful Objective

Consideration

Offer and Acceptance

Legally Capable Parties

EXAMPLE:Any contract that is missing ONE OR MORE of the essential elements of a valid contract.A contract is void if it is missing ANY of the following:

EXAMPLE:A typical valid sales contract can become voidable if it includes a contingency.A contingency can include:

Mortgage Contingency(the buyer must obtain a mortgage in order to close on the transaction)

Inspection Contingency(the buyer may back out of the contract if they find significant defects during the property inspection)

Property Sale Contingency(the buyer cannot close on the transaction until they sell their existing property)

EXAMPLE:An oral contract used to purchase a property is unenforceable since the Statute of Frauds requires all real estate purchase contracts to be in writing

A contract that appears to meet the requirements for validity but would not be enforceable in court

UNENFORCEABLE CONTRACT:A contract in which the parties may be legally required to perform

EXAMPLE:Any valid contract that offers a legal remedy in the event that the contract is not fulfilled, such as a typical purchase contract

ENFORCEABLE CONTRACT:

ESSENTIAL ELEMENTS OF A VALID CONTRACT

CONTRACTAn agreement to do or not to do a certain thing

Contracts Must Have Four ESSENTIAL ELEMENTS:

EXAMPLES OF CONTRACTS IN REAL ESTATE

Listing Contract

Purchase Contract

Independent Contractor Agreement

Deed

Mortgage

1) CAPABLE PARTIES

2) CONSIDERATION

3) LAWFUL OBJECTIVE

4) OFFER AND ACCEPTANCE

CAPABLE PARTIES: All parties must have the legal capacity to contract

Legal Capacity Includes:

18 Years Of Age Or Older

Sound Mind / Mental Capacity

1

18+

Other Competent Parties Include:

Persons acting on behalf of a corporation

Power of Attorney

Fiduciary given the authority to contract

Emancipated minor

2 CONSIDERATION: Anything given or promised by a party to induce another to enter into a contract

MONEY is commonly used as Consideration in a real estate contract

Other Types Of Consideration:

3 LAWFUL OBJECTIVE: The contract must have a legal purpose

A Promise to do something

Love and affection

Contracts that do not have a legal purpose are considered void

Types Of Illegal Objectives:

Personal services

To commit a crime, a tort or a fraud

To promote corruption in public life

To defraud the revenue

To hard public safety

4 OFFER AND ACCEPTANCE: Also known as mutual consent or a meeting of the minds

OfferorThe person making the offer

OffereeThe person receiving the offer

An Offer Must:

Have an exact price

Acurrately describe the property

Be clear in character

DISCHARGE OF CONTRACTS

THERE ARE 4 PRIMARY WAYS A CONTRACT CAN BE DISCHARGED:

(1) Agreement of the Parties

(2) Full Performance

(3) Impossibility of Performance

(4) Operation of Law

1 AGREEMENT OF THE PARTIESThe parties to a contract can simply agree to terminate the contract

Executory Contract Executed Contract

Before a contract is executed, the parties have the option to terminate the contract if all parties agree

New Executory Contract

NovationThe substitution or exchange of a new contract for an old one by the mutual agreement of the parties

AssignmentA transfer of benefits and obligations within a contract to a 3rd party who is not originally a party to the contract

Assignee

Executory Contract

AssignorOne who transfers their interest in a contract to another party

One who receives the interest in a contract from another party

The assignee is now liable for the contract

FULL PERFORMANCEAn executed contract occurs when all parties fully perform the terms of the contract

Full performance is the most common form of discharge

Executory Contract Executed Contract

EXAMPLE:If the buyer and seller agree to make a change to the sales contract, the existing contract can be mutually terminated for a new contract between the parties.

This is a form of novation.

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IMPOSSIBILITY OF PERFORMANCE

EXAMPLE:When a property closing is completed, and the funds and title have been transferred, the sales contract between the buyer and seller is considered fully performed or executed

Impossibility of performance is often used as a defense for breach of contract.

It occurs when it becomes impossible for one or more parties to perform their duties of the contract

3

The following are considered grounds for impossibility of performance:

One or more of the parties gets injured or passes away

The property gets destroyed

The government passes a law that makes the contract performance illegal

EXAMPLE:A homeowner hires a contractor to build an addition to their house. Soon after, the owner learns that proposed addition is against the local zoning laws, and therefore cannot be built.

It will then be considered impossible for the contractor to perform his obligations of the contract, and the contract can then be terminated.

4 OPERATION OF LAWOperation of law describes how the rights and liabilities of parties may be changed by the application of law.

EXAMPLE:

If a person dies without a will, their heirs are determined by an operation of law.

EXAMPLE:An individual files for bankruptcy.

Any debt obligations the individual possesses through existing contracts may be terminated.

PUBLIC LAND USE CONTROLS

PETEUse the acronym to remember the government powers in real property

Eminent Domain

Taxation

Police Power

Use the acronym

Zoning

The right of any political body to enact laws and enforce them, for the order, safety, health, morals and general welfare of the public.

Escheat

Police Power does NOT include compensation to the owner

Building Codes

The RIGHT of the government to acquire property for necessary public use by condemnation.

The owner MUST be fairly compensated

CondemnationThe actual ACT of the government taking property

Example

Example

Eminent domain may be exercised to make way for a new highway

The right of the government to tax real estate to pay for services and programs supported by the government

Real estate taxes may be used to pay for roads, sidewalks, public parks, etc.

Example

Occurs when property reverts back to the State when an individual dies without a will and without heirs

An individual who dies without a will is said to have died "intestate"

FREEHOLD ESTATES

FEE SIMPLE ESTATEalso known as a: FEE SIMPLE ABSOLUTE or FEE ESTATE

Absolute ownership of real property in which the owner is entitled to the entire property with unconditional power of disposition during the owner’s life and descending to the owner’s heirs

THE HIGHEST FORM OF OWNERSHIPIn a fee simple estate, the owner holds the full bundle of rights to the property

FEE SIMPLE DEFEASIBLE ESTATEAn estate subject to being lost if certain conditions occurThese conditions are typically stated in the deed

FEE SIMPLE DETERMINABLEFEE SIMPLE SUBJECT TO A CONDITION SUBSEQUENT

2 TYPES OF FEE SIMPLE DEFEASIBLE ESTATES

" THINK THE FULL BUNDLE OF STICKS "

An estate that will end automatically when the stated event or condition occurs. The interest will revert to the grantor or the heirs of the grantor

A defeasible fee title recognizable by the words "but if"

ExampleMary grants her property to James "but if" James moves out, the property will revert back to Mary or her heirs

LIFE ESTATEA freehold estate created for the duration of the life or lives of certain named personsA life estate cannot be inherited

ExampleDavid grants his property to the State to "only be used as a park"When the State stops using the property as a park, the property reverts back to David or his heirs

Example

Mark grants his property to Lisa for the life of Lisa.After Lisa passes away, the property reverts back to Mark (or another individual specified by Mark, known as the Remainderman)

PARTIES TO A LIFE ESTATE

GRANTORA person who conveys title to real property by deed.

LIFE TENANT (GRANTEE)A person receiving a life estate.

REMAINDERMANA person who has a future interest in a life estate.Specified by the grantor.

Grantor grants property to life tenant for the life of a specified individual

After the specified person passes away, the property may be transfered to the remainder man

ESTATE IN REMAINDER

ESTATE IN REVERSION

After the specified person passes away, the property may be transfer back to the Grantor

REMAINDERMANLIFE TENANTGRANTOR

TYPES OF LISTING CONTRACTS

There Are 4 Primary Listing Contracts You Should Know:

(1) Exclusive Right to Sell Agreement

(2) Exclusive Agency Agreement

(3) Net Listing

(4) Open Listing

LISTING CONTRACT:A contract in which a property owner employs a real estate broker to market the property described in the contract.

Even if the Principal finds the buyer, the Agent is still entitled to a commission

AGENT

BUYER

PRINCIPAL AGENT

EXCLUSIVE RIGHT TO SELL AGREEMENTA Listing Contract given to only one broker who is entitled to the commission if anyone sells the property during the term of the Listing Contract.

1

The Agent is entitled to a commission when:

The Broker finds a buyer

An agent working under the Broker finds a buyer

A Cooperating Broker finds a buyer

The Agent is NOT entitled to a commission when:

The Principal finds the buyer themselves

OPEN LISTING

A listing contract given to one or more brokers in which the broker procuring a sale is entitled to the commission but imposes no commission obligation on the owner when the owner sells the property.

3(Also known as a NON-EXCLUSIVE LISTING)

PRINCIPAL

PRINCIPAL

An Open Listing does not offer an exclusive to any one agent.

Instead, any agent who helps secure a buyer is entitled to the commission.

This type of listing offers the least amount of protection and incentive to agents, which is why they are rarely used.

NET LISTINGA listing which provides that the agent may retain as compensation for agent’s services all sums received over and above a net price to the owner.

4

An Open Listing offers the LEAST AMOUNT OF PROTECTION to the broker

An Exclusive Right to Sell Agreement offers the MOST PROTECTION to the broker

EXAMPLE:David hires a broker to sell his house.They agree to a listing price of $350,000.

According to a Net Listing, the broker's commission will equal any amount above the listing price.

The broker ultimately finds a buyer who is willing to purchase David's house for $390,000.

LISTING PRICE

$350,000 $40,000

SALE PRICE: $390,000

BROKER COMMISSION

The broker's commission will equal $390,000 (the sale price) minus $350,000 (the listing price)

Net Listings are ILLEGAL in most States!Net Listings are illegal in most States as it may lead to brokers taking advantage of homeowners

EXCLUSIVE AGENCY AGREEMENTA listing contract which is given to one Broker (exclusive), who is entitled to a commission if they, or any other Cooperating Broker, secures a buyer.

However, the Principal does NOT have to pay a commission if they secure the buyer themselves.

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